Monthly Archives: November 2011

I was always a fan of Game Theory and especially of its derivative game, The Prisoner’s Dilemma, since I’m an avowed believer in Zero Sum kinetics.

 If you don’t know what any of that means, you’ll have to decide whether to admit it, based on what your alter-ego will decide to do, knowing that your reward or punishment will be based on what you both decide, in the seclusion of the recesses of your warped mind(s). 

In the event you have more than one alter ego it gets just a bit more complex.

Welcome to my world.

Game theory is much easier when your alter ego is perfectly in sync with your true self. It’s also easier in totalitarian situations, because in such cases people are afraid to go counter to authority.  

Assuming that you possess some level of sanity and don’t have to take into consideration the needs of your alter ego, investing decisions, especially buy and sell ones, should be pretty easy. 

“Should be” is the operative phrase.  

I’ve long known that I’m incapable of selecting a good stock.

When I appeared on Bloomberg Rewind a couple of weeks ago, the guest panelist asked me the worst stock decision that I had made.  

My first thought was “why is this a**hole asking me that question?” Besides, how do you trust a guy who’s not trying to grow a mustache during MoVember, as the host, Matt Miller was bravely doing, without going on a 3 week vacation to do so.

It didn’t take me long, though, to dredge up a near quarter century decision to purchase shares of L.F. Rothschild, a one time venerated name in investment banking. That particular year, it had the distinction of being the largest percentage loser of any company on the NYSE.  

II may be a lot of things, but no one can accuse me of not learning from my mistakes.

At least the big ones.  

Instead, I stick to my list of “Old Reliables” and rarely venture outside that comfort zone.

When I do venture, my timing seems to be highly correlated to short term unwanted price movements.

About a month ago, just as earnings season was getting underway I bought shares in Green Mountain Coffee Roasters, Amazon and Netflix. Of those, I’d never owned Netflix before.  

I don’t know what made me purchase those. It was an uncharacteristic move for me to do so. 

What that triad had in common was great options premiums in advance of earnings. Maybe a little price momentum, as well. Amazon stood alone in that group by not having any black clouds hovering nearby.  

While Green Mountain delayed its earnings report by a couple of weeks, I had the opportunity to get three weeks of great premiums, but then came the news.

Green Mountain was already suffering from more doubts about its financials and Crazy Eddie like inventory issues.  

Prior to the live broadcast of Bloomberg Rewind the news came. Green Mountain’s disappointing earnings resulted in a $25 after hours decline. 

Of course, I had the lack of good sense to mention that I held shares on the program that evening, but I also mentioned that I didn’t buy into the Bernard Baruch axiom of cutting your losses at the 10% level.

Besides, with a cost basis of about $67, I’d already pocketed about $14 in premiums in that 3 week period. Still, Green Mountain opened at what would have been a 20% loss even when based on the net cost basis. I could feel Bernard rolling in his crypt. 

What I said on air was that I was going to stay the course and let emotions revert to the mean, just as prices do. The highs and the lows don’t last, except in the case of L.F. Rothschild and depression leading to suicide.  

My less cool and collected alter ego wanted to cut and run. 

I still have a hard time reconciling the fact that the investing cautious me, let’s call him “Louie”, is willing to have unprotected sex in a crack house, whereas the “no worry” investor me, “Ricardo”, would never think of doing such a thing.  

Then the realization hit.

It was Ricardo that made those uncharacteristic purchases and he now left me with the dilemma of what to do. Louis, on the other hand was smoking crack with the options premium money that Ricardo conjured up.  

The dilemma was created by not knowing what ultimate price would be exacted on any decision because there was yet another alter ego in the mix.

 This one was a nasty behemoth called the Stock Exchange.  

Great. Now I had to worry about what the macro-economic oriented market would do, as well as what that short sighted micro-economic Louie would want to do. Louis wanted to smoke his crack and have his stock profits, too.

Compound that with the fact that the market was beginning to react in an unprecedented way to rumors, news of possible news and news of real news.  

A purely rational person would have discounted the irrational market and made a decision purely on the remaining alter ego, being intimately aware of its thought processes. 

The investing cautious Louie would certainly look at the potential tax benefits of taking a strategic loss on Green Mountain shares and then take another long drag on that pipe, while taking care not to set his hair ablaze.  

The care free Ricardo would believe that tax consequences were irrelevant. In fact, the more taxes you had to pay, the better. That only meant that you had that much more in capital gains. 

“Laissez le bons temp rouler.”  

Did I mention that Ricardo actually had a Cajun alter ego, Ricardeux? 

Ricardo, for all of his subset personalities understood the concept of authoritarian rule. 

Khaddafi was on top of his game as long as he was ruthless. No one dared to question his decisions and he made them with impunity.  

Then he decided he had to get into the good graces of the West. 

We all know what happened then.  

So did Ricardo. 

As soon as his plane landed in Phoenix last Monday an additional lot of Green Mountain was purchased at $41.85 and weekly calls on that new lot were written at $42, while the original lot went unhedged. He assumed that Louie would be paralyzed by over analysis of the situation and would make no effort to counterbalance Ricardo.  

Louie was apoplectic, because Ricardo was right. And now, it was too late for Louie to do anything or to change his mind. There was no second deal to be made. 

At the very least Louie would have hedged the whole position, but that was now off the table, as well.  

In this game you have to be quick and ready to deal.

In the meantime, that nasty Stock Exchange decided to go into a mid-week funk, dropping about 3%.  

In the Prisoner Dilemma Game you also have to be ready for the unexpected. 

But the real unexpected was that even with walls of support crashing, Green Mountain climbed up to $51.

And so RIcardo and Louie were at odds again.  

Ricardo felt good about at least garnering some more options premium on the split holdings, not hedging the remainder and felt no remorse for foregoing paper profits.

Louis was unapologetic.  

He argued that the proceeds from selling the Green Mountain shares could have been plowed into the likes of Caterpillar, which was now trading below the $95 price at which shares were recently assigned. Besides the 2% weekly premium, theer were those tax advantages, too. 

And so, they were both right, at least for last week. Both had rational thought processes and understood the other’s positions and reasoning.  

But come Monday, the whole tug of war starts again. 

Both Louis and Ricardo will be aboard yet another plane when the Stock Market opens on Monday. In essence, they’ll be held hostage to the irrational movements of their macro ego.  

I wonder what would happen if I actually swallowed these green and white capsules?

 

  

 

  

 

 

 

Malcolm Acs served as today’s guest blogger. The views in this blog entry are his alone and do not represent the Disinfectant Industry, No molds or bacteria were harmed in the writing of this blog

Despite spending the last eight years of my life living in Washington, DC, I’ve managed to stay clear of any and all political involvement.

I voluntarily went into work during the Obama Inauguration. I avoided every form of public transportation during the Glenn Beck “Restore America” rallies. I was in the bathroom for most of the Larry Craig scandal.

Recently when I was asked by a complete stranger on the bus if I thought Obama stood any real challenges in re-election, I immediately retorted that I had voted for George W. Bush in each of the last three elections. Based on the abrupt end to our conversation, I think it’s safe to say that Bush will have my support once again next year.

Although I’ve been known as a bit of a hell raiser and a constant contrarian, I’ve always had very little tolerance for protestors in any form. My sophomore year of college the school hosted the “National Conference on Organized Resistance”, bringing over a thousand radical progressives from around the country for a week of discussing everything from authoritative veganism, homemade bomb making, and the evil of tampons. After being tired of the stench of over a thousand unbathed squatters spending a week inside of our building, I attempted to freshen the space with two dozen cans of Lysol. While I did not face any disciplinary action for assaulting the eyes of a few hundred occupiers, my actions were strongly condemned by the student newspaper as an act of ozone terrorism.

Now six years later, I tend to look at things a little bit more rationally. I’ve watched hundreds of inane causes bring people to my backyard, but after the weekend they always move on, leaving some trash on the ground but some dollars with local businesses. When the first tents started popping up next to my office as the Occupy Wall Street movement moved south to Washington, I assumed it would be as fleeting as every other movement and be over before it even really began. Each morning as I passed through McPherson Square (home of the larger of the two occupier camps, immediately north of the White House), I watched the infrastructure get more complex as their population grew. I couldn’t help but wonder if they knew how much Wall Street funding went to the manufacturers of the Eddie Bauer and Columbia brand tents that were popping up.

I became more and more uneasy with the entire situation and it showed increasing signs of permanence. This time however, I left the Lysol at home and took much more combative measures.

I invested every penny I had in Microsoft.

While occupiers have damned Wall Street for destroying wealth through mismanagement of assets and creating a “rich-get-richer” economy based on derivatives, Capitol Hill has struggled with companies like Microsoft bloating their balance sheets with cash that could otherwise be reinvested in job-creating activities.

At the recent shareholders meeting, Gates defended the $57B of cash on hand by claiming, “You want to retain enough (cash) so the company has the strength to be able to take big risks even in the face of some economic uncertainty”.

Microsoft? Risk? Big Risks? Unimaginable. Google Apps is quickly starting to eat into the MS Office suite. Apple’s OSX is growing in home computing and becoming the clear choice for executives, sales teams, and engineers. I’m far more likely to use a payphone and own a rotary phone than a Windows 7 phone.

Amazon Web Services owns the cloud and Google and Apple’s investments will be dominant long before Azure is even relevant. The difference between Amazon, Apple, Facebook, and Google is they respond to consumer demand and iterate daily. Microsoft updates its Office suite every four years.  The companies that actually take the risk to reiterate and reinvent have created enormous gains for shareholders.  Microsoft has traded between $20-30 for the last decade.

My father and I have a number of things in common, but the biggest one is our constant quest to make “easy money”. Since the day I started working, I’ve spent a ton of time scheming up different ways to stop working. When PNC Bank introduced ATM fee reimbursements I spent hours researching the logistics of owning my own ATM machines, charging myself exorbitant fees, and spending my days making $20 withdrawals and living off reimbursed fees. Several years ago as a borderline-suicidal Baltimore Orioles fan, I convinced my father to lend me $1,000 to screen print 200 “DUMP ANGELOS” t-shirts. After showing him that the profit from the first production run would be enough to buy six 1964 color televisions, he promptly funded the venture. We have a lot of shirts left. Four years later I have not repaid the loan, however in my defense I didn’t have time to research the definition of “negatively amortizing” when I signed the document. Why should I possibly repay a loan that is greater than the value of the shirts?

Despite the many past easy money failures (and likely even more in the future), Microsoft has been the closest consistent source. Two trading days before my first ever options-expiration-Friday, I’m sitting on the right side of $27 calls that I wrote less than three weeks ago with a 41 cent premium. Couple that with a 20 cent dividend payment from the $56B never-to-be-used rainy day fund and that’s a 2.3% return in less than three weeks.
Come Monday I’ll take my likely unassigned shares, rewrite a new set of contracts, collect my premiums, and start my work week. I’ll be confident that Microsoft won’t be able to innovate themselves above $30 or squash themselves below $20. Two months later I’ll enjoy the fact that Steve Ballmer truly believes that “We are in the Windows era. We were, we are, and we always will be,” by collecting my dividend payment in lieu of ever taking that big risk that they save every penny for.

One day the Windows era will be over, but at that point I’ll likely be far better for it, 2.3% at a time, every month, every time. Hopefully at that point PNC still reimburses ATM fees and Angelos still owns the Orioles.

Maybe I’ll stop tomorrow morning in McPherson Square and explain to the occupiers how they too can use derivatives and a dividend-capture strategy to safely increase their own personal worth at the expense of market-crashing speculators. I’ll probably just play it safe and stick with the Lysol.

“@malcolmacs is a former technology headhunter currently working within the e-commerce and social media industry in Washington, DC. He is a dual graduate drop-out in Quantitative Finance and Information Systems Management . His fund currently manages over $8,000 in assets. Do not follow him on Twitter.”

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Having spent the day in search of a mystical “vortex” high atop some mountain in Sedona, my eyes have been opened to a greater truth.

Of course, it’s entirely possible that the eye opening occured as direct result of the 11 AM wine tasting. There’s nothing better than a sampling of Arizona varietals to get you ready to hike up a mountain or two, or even better, to help you forget about hiking up a mountain or two.

I began to wonder at what point could you no longer justify starting to drink so early on the two hour time change.

7 years?

Guidance and preparation is the key to everything. We all need a personal Sherpa through all phases of our lives.

They do the work and you get the glory.

Everyone out here knows of the “vortex,” but their locations aren’t publicized widely. You have to find them on your own, given only some rough information.

None of the locals have ever gone to the sacred spots. That has to tell you something, but then again, it took my moving from New York before I ever made it to the Macy’s Thanksgiving Day Parade.

I’ll always be grateful to Sherpa Snoopy.

Aimlessly following along a path that took us higher and higher, a man in a strikingly loud blue sweat shirt, that seemed to blend in with the clear sky and carrying a hiking stick, appeared from nowhere at the very top of the mountain. He worked his way down toward us and then confirmed for us that the vortex was indeed at the peak.

What he didn’t confirm was that the vortex actually had the properties that everyone was seeking. Somehow, the “vortex” was supposed to  deliver vibratory sensations and emanate heat while to providing some magical renewal to the soul.

WIth the two hour time difference and the lack of connection to the world at large. I definitely needed something to renew my soul which was floundering in the void left in the wake of a vacation.

Climbing up a mountain in my all purpose penny loafers seemed to be the answer.

Not having tuned into CNBC or Bloomberg its been difficult to know what’s been shaping the markets into their action or inaction for the past two days.

Although I did ask, this particular Sherpa didn’t appear to be specializing in that particular area of my interests. I never even thought to ask him what macroeconomic issues were at play today.

As I stared into the incredible carved out red mountains against a sea of bright blue sky, there’s probably a greater chance of understanding how those were carved out than we’ll ever truly understand market dynamics.

I heard roughly equal number of comments about God and nature being responsible for the wonders before us. The beauty proved both sides of the argument to my satisfaction. In hindsight, it was probably a mistake for me to suggest that the rock formations proved that fetal stem cell research is ordained by a higher energy.

On these recently increasing days that I’m cut off from a reliable income stream the trades still need to be made. They’re not going to make themselves, although they could if someone would send an algorithm my way.

What I do know is I made a few trades as I occasionally got an opportunity to check in with my cell phone. I bought more shares of Netflix and Goldman Sachs, sold calls on those, as well as calls on Halliburton and Freeport McMoRan.

I remember thinking that there must be a higher order and authority. How else could a cell phone connection exist in such a remote area other than through divine intervention.

In a misguided attempt to make trades on my Droid phone, which is an entirely unsatisfactory experience, I also ended up buying calls on British Petroleum when my intention was to sell.

That, to me, indicated that there was no such higher authority. How could a loving Supreme Being have allowed such a travesty?

I’m certain that had my personal Sherpa been at my side that sort of thing would never have happened.

I never buy calls. He would have known that.

Having a Sherpa at hand can be very useful. Presumably, to be a qualified Sherpa you have to understand the challenges that lay ahead and then endure and conquer them.

To do so, you have to be prepared.

As we trekked up the mountain, my Sugar Momma, who is usually prepared enough for two, fell right out of her completely ridiculous shoes.

Fashion trumping function, those were the same kind of shoes she fell out of while pregnant with our oldest son many years ago.

So that should answer that question.

In this case, she forgot to change into hiking shoes as we left the car.

Fortunately, the outcome was just embarrassment in front of a  gaggle of Taiwanese friends re-assembled for a college reunion.

We eventually reached the summit together and found the “voretx”. The Taiwanese felt the glow, the vibration and the heat.

I’m not surprised. They also don’t feel the acupuncturist’s needles.

I felt nothing, but I did get a cell signal, so at least I felt the joy of being able to read the morning’s Daily Dilbert, high above the roadside.

With SHerpa in hand, I’ll be better prepared for tomorrow. I’m certain that my guide and protector will awaken me before the opening bell in New York.

That didn’t happen this morning. I actually missed the first 30 minutes or so and whatever opportunities may have come along in that time.

The SHerpa will also guide my as we travel to the Grand Canyon tomorrow, to be certain that I methodically check the settings on my Droid app, so that I don’t make the same mistake twice and once again purchase a worthless call option.

In the meantime, Sherpa and I can celebrate the ultimate victory.

Even with Tuesday’s little erroneous trade mishap, I hit a personal best month ever in terms of options premiums with the most recent trades.

Even if we fall off the cliff, they can’t take that away from me, but of course, if that does occur, the loyal Sherpa is likely to break my fall.

And that’s exactly why selling covered calls is like having a personal Sherpa. They protct and guide you toward a defined strike price.

As Green Mountain Coffee Roasters took that huge earnings related hit last week, that fall was nicely cushioned by lots of options premiums the previus three weeks.

Cost averaging down on Monday and selling even more call actions at the lower price strime just served to further reduce the cost basis. Now, despite that $25 drop, the shares are no longer a losing proposition.

The options will expire and no one will ever really remember that they existed. The glory is all mine and I live to trade another day, as long as those calls are out there to protect.

Now, if only I could get a Sherpa to protect me from Sugar Momma’s ire as I play with my various “devices” while I’m supposed to be communing with nature and the energy of the vortex.

That would truly be something special and a worthy cause.

Until that time comes, I’ll attempt to sneak peaks at what’s going on in the markets and attempt to squeeze a few more trades out before the November cycle ends.

Besides, I have to pay for this vacation and Sherpas don’t come cheaply, either.

 

 

 

I’m no longer at a stage in my life that I fantasize about becoming a member of “The Mile High Club.”

As I look around the bleary eyed passengers of a 6:15 AM flight to Phoenix, Sugar Momma’s present company excluded, no one really appears to be Mile High appropriate.

Part of that assessment may also be related to the fact that Sugar Momma is peering at the screen and another part may be related to the very cramped spaces in the airplane lavatory.

America is not a thin nation. Airplane lavatories that may have sufficed a generation or two ago just won’t do it anymore.

Combine that with the fact, as I’ve previously made clear, that I don’t use public restrooms and you’ve got a non-starter kind of situation.

If I had the ability to read minds, my guess is that anyone on board thinking about entertaining in a Mile High fashion is equally disinterested in me, although to my credit, I don’t take up much space.

But that’s not the Mile High Club that I was hoping to be part of this morning.

As we begin a few days trip, here we are on a Monday morning, when I would normally be very anxious to trade in on the good names of my holdings and sell whatever call options as I could.

With a monthly record of accrued options premiums already safely at hand, I’m within distance of achieving a 100 on the 1964 Color TV Metric for the November 2011 option cycle. That was a figure that I could barely even fantasize about.

There was an extended period of about 7 years when I flew twice a week but never really gave any thought to what I was missing in the world of streaming data by virtue of being aboard a plane. Besides, back then we were lead to believe that an Internet connection of any kind was incompatible with flight safety.

Back in those days I flew after the markets had closed and besides, options only came in the monthly variety, so I would have a flurry of activity on that first Monday and Tuesday.

Not so this morning.

I’m still anxious, but unable to perform.

Actually, that sounds like the situation for the original Mile High Club, as well.

Having started the morning off so promisingly, seeing the CNBC logo emblazoned on airport newsstand, I was so hopeful that the Southwest Airlines flight would be Wi-Fi enabled.

I had flown the previous week to Nashville, but did so on a late Thursday morning, usually a slow time for my kind of trading activity. It really didn’t matter to me that there was no Wi-fi on that 2-hour flight.

Today, I just knew that it was going to be different.

Despite the fact that the cashier at the CNBCstore gave me a blank stare when I asked for her advice on Green Mountain Coffee Roasters and snapped at me “what do you think? Do I look like friggin’ Herb Greenberg to you?”

As it turns out, those people aren’t really employees of or contributors to CNBC, although the cashier looked strangely like James Altucher.

If I’m not mistaken, Altucher did once have a blog entry entitled “The 12 Things I Learned from the People who made Impulse Purchases at the Register before Boarding their Flight.”

So, it could have been him,

Yet, despite the lack of helpful guidance at the CNBC store, I still held hope that everything would fall into place today.

I was completely prepared to stream CNBC, engage that trading platform and join that Mile High Traders Club, ready to pounce and thrust trades out from this ad hoc trading machine.

I even had visions of having a celebratory cigarette afterward basking in the glow of victory.

Well, guess again.

First of all, it turns out that there is no smoking allowed on airplanes.

Secondly, no Wi-Fi.

To make matters even worse, next to public restrooms the thing that I like the least is making casual conversation with strangers aboard a plane.

In several hundred flights over that 7 years period, I probably averaged 7 words per flight, usually related to the offering of peanuts or a beverage.

While Sugar Momma slept with her head on my shoulder, someone asked what I did for a living and I was begrudgingly engaged me in conversation.

I can’t remember the last time anyone really asked me that question and I really didn’t have an answer.

Without giving her reason to ask, she then told me that her husband, a physician, as if I had cared, wanted to invest all of their money in gold.

She wanted to know what I thought.

Odd, Is what I thought initially.

See he wasn’t there to defend himself, I gave my opinion.

I then made the mistake of mentioning stocks and options.

But I do enjoy rambling on about that topic until she asked me if I only bought shares in corporations that were socially responsive.

I gave her the same “are you serious look” that I’ve given to others on other occasions. I like to make money with my stock investments, and not see them predictably trail the indices.

She had no concept of opportunity costs, when she countered that “if stocks make 10% and your investment made 7%, then you’re not really losing money.”

I tried to tell her that when purchasing shares in Altria, for example, that was a hands off transaction for Altria. They didn’t own the shares, someone, perhaps me, owned those shares. A buy or a sell was transacted with another individual or  institution, and not with Altria.

Donate the capital gains to charity, was my solution to any pangs of guilt.

How I wanted that conversation to end.

But first she had to tell me that what was necessary was a boycott of stocks. She used flawed history to point to the case of South Africa and how people got the system to change.

She had mistaken consumer boycotts for a stock boycott.

Of course, I never wanted to point out the socially irresponsible way that gold may be mined, yet that was there “go to” investment strategy.

All I really wanted to to get off that plane, forget about any hopes of joining the Mile High Club and get on with life.

We landed at about noon New York time. Plenty of time to make a couple of trades. Adding shares of Green Mountain Coffee Roasters and JP Morgan, certainly among the most socially responsible corporations out there.

With quick sales of call options on both it was then time to meet up with friends and head out for a day of hiking.

We didn’t make it very far on this first day, but tomorrow, we all plan to join the Mile High Club together.

I think I mean that in a literal sense, but there’ll be lots of Margaritas, so you never know if the figurative interpretation will show its face.

Tomorrow’s another day. I’m still a bit shy of that 100 Color TV mark, but am hopeful.

Socially responsible or not, someday I’ll reach that Mile High Club, even if it’s by myself.